Euro zone industry shrinks faster than feared in Dec

FRANKFURT (Reuters) - Euro zone industrial production shrank by more than expected in December, indicating that the sector's two-year recession is far from over even if some sentiment and order figures have pointed to bottoming out.

Output in the 20 nations sharing the euro was down by 1.1% in December from the previous month, data from Eurostat showed on Thursday, underperforming expectations for a 0.6% drop as industrial powerhouse Germany shrank by 2.9% and Italy by 3.1%.

Industry has been a drag on Europe for years now as expensive energy, weak demand from China, intensifying global competition, and out-of-fashion models in the car sector are all a drag on orders.

Compared to a year earlier, output was down 2.0%, dragged down by a massive 8.0% drop in the production of capital goods.

While some sentiment indicators have pointed to stabilisation in industry, fresh U.S. tariffs on steel and aluminium compounded by the threat of further trade barriers, are likely to weigh on the sector.

Tariffs on China are also likely to be a drag on Europe, since Chinese goods are likely to seek new markets and could crowd out locally produced items, some economists fear.

Compared to November, capital goods output fell by 2.6% while intermediate goods were down by 1.9%, partially offset by a big rise in consumer goods output.

Euro zone growth has been stagnant for much of the past year as consumers are saving up their excess cash, partially due to worrying news over the health of industry, a key employer.

(Reporting by Balazs Koranyi, Editing by William Maclean)